Dinner and a Movie for the Whole Family!
Movie theaters with restaurant-style food service will reach a broader audience with the recent signing into law of a bill passed by the Washington State Legislature allowing service of food and alcoholic beverages to their patrons. The law as currently written allows some service of alcohol in movie theaters, but requires exclusion of minors from the premises. The new law will create a new, more family friendly, beer, wine and spirits license for theaters. The license will allow minors if certain conditions are met and approved by the Washington State Liquor Control Board, such as submission of an alcohol control plan outlining the methods to prevent minors from obtaining alcohol, similar to plans that are required for clubs and show venues that host all‑ages concerts. Theaters will also be required to meet food and service requirements, similar to restaurants, to qualify for the license. (Senate Bill 5607 as Passed by Legislature)
Continue Reading...Rick Garza to Lead Washington State Liquor Control Board
Stoel Rives LLP offers its congratulations to Rick Garza on his appointment as Director of the Washington State Liquor Control Board. Today the agency issued a press release announcing the appointment will be effective June 1, 2013. Garza will be assuming leadership in a time of unprecedented change – the agency is on the tail end of implementing privatization of liquor sales and at the forefront of developing a comprehensive regulatory system to govern legalized growing, processing and retailing of marijuana for recreational use.
Sales Limit Increase Could Give Washington State Craft Distilleries More Momentum in the Retail Market
This week, a bill passed the Washington legislature that will allow a craft distillery to sell more of its product to customers visiting its distillery.
House Bill 1149 has been sent to Governor Inslee to sign in to law, amending RCW 66.24.145 to allow a craft distillery to sell a maximum of three liters of spirits of its own production per person per day for off-premise consumption. The prior limit was two liters per person per day. Importantly, craft distilleries that opt to sell spirits from their premises must be aware that they are required to comply with the applicable laws that relate to retail liquor licensees, such as responsible alcohol sales, as well as the state and federal requirements that apply to distilleries.
Craft distilleries are distinguished from larger distilleries most notably by the amount of spirits produced—a maximum of 60,000 proof gallons per year (WAC 314-28-050)—and the requirement that a minimum of 50% of Washington-grown raw materials be used for production (WAC 314-28-060). The craft distillery industry has experienced steadfast growth since the Washington State Liquor Control Board implemented the license less than three years ago. The passage of 1149 is a clear indication of the need for refinement of the laws that regulate this growing industry. Craft distilleries have the potential to gain a stronger presence in the liquor market as more people look to them directly for unique, local spirits.
A Battle is Brewing in Utah over Alcohol Reform
By Adrienne Bell and Catherine Parrish Lake
As the Utah Legislature wrapped up its session this week, it appears that a battle is brewing between the House and Senate over alcohol reform. Citing a concern with the “culture of alcohol,” the Senate declined to support many of the measures the House approved this session. The House voted to eliminate the so-called “Zion curtain,” which several key House members describe as “irrational” and “weird.” The House also approved changes to the population quotas for club licenses and removed restrictions that prohibit beer wholesalers and producers from selling “heavy” beer directly to restaurants. Each of these reforms, however, failed to receive a hearing in the Senate. Representatives Ryan Wilcox and Curtis Oda have been particularly vocal in expressing dismay about the Senate’s refusal to consider House bills that passed with large majorities. In response, the House defeated a number of the Senate’s alcohol bills, including those introduced by Senator John Valentine who is one of the key Senate sponsors of alcohol legislation. The defeated Senate proposals include increasing penalties for serving minors, restricting multiple licenses for the same location, allowing sampling of beer and spirits and restricting DABC’s discretionary powers.
Importantly, the Legislature will study alcohol reform during the interim session, which runs from April through November. Topics for discussion include whether to repeal the Zion curtain and increase the quotas for club licenses. The Senate has suggested that any increase in dining club licenses, which include restaurants like Ruth’s Chris and Spencer’s, would require limiting these establishments to patrons who are 21 and older. The Legislature also indicated that interim committees will review proposed legislation to address the sale of existing licenses.
Catherine Parris Lake and I will continue working on potential alcohol reforms during the interim session and will report on the issues under consideration by the committees. We welcome your feedback concerning any of the proposed changes.
Utah Legislative Wrap-Up on Alcohol Amendments
Only two proposed amendments to Utah’s Alcoholic Beverage Control Act passed during the most recent session of the Utah Legislature, which concluded on March 14th. H.B. 240 passed earlier in the session and addresses the “intent to dine” issue we reported on previously. Under the change, a restaurant licensee must confirm that a patron has an intent to order food prior to selling or furnishing a drink. It is unclear, however, what type of “confirmation” will be sufficient to comply.
The second bill to pass was hammered out during a House and Senate conference committee that met on the last day of the session. The compromise bill was introduced as a substitute to H.B. 228. The House and Senate ultimately approved the substituted H.B. 228 before the session ended. Governor Herbert is expected to sign both Substitute H.B. 228 and H.B. 240.
Most notably, Substitute H.B. 228 authorizes master licenses for full and limited service restaurants. To qualify, restaurants must be commonly owned and the owner must include at least five locations under the master license. Master license fees are $10,000 for full service restaurants and $5,000 for limited service restaurants, plus the initial license fees required for each newly licensed location ($2,200 for full service and $825 for limited service restaurants). As previously reported, enforcement across locations was a concern for the restaurant industry. The bill addresses these concerns somewhat by limiting the scope of enforcement actions. Under the bill, DABC may take disciplinary actions against a single location, individual staff at a single location or a combination of the two. Disciplinary action may be taken against the master licensee or staff of the master licensee if 25% of the locations covered by the master license have committed grave or serious violations or if 50% of the locations have committed any violations. The master license and all locations under it will count as one retail license for quota purposes. While a master licensing scheme may free up additional restaurant licenses, the current availability of restaurant licenses may make it unlikely that chains will adopt the new license format until licenses are no longer available.
Substitute H.B. 228 also makes several other changes, including:
- Allowing DABC to issue a conditional license for any type of retail license;
- Extending the time period for conditional licenses from six months to nine months, with a possible extension of three additional months;
- Allowing existing fraternal clubs to admit and serve guests without a club host if they derive at least 60% of gross sales from food;
- Postponing the effective date of the Transfer of Retail License Act until July 1, 2014; and
- Clarifying certain financial and audit provisions related to the DABC.
Utah Alcohol Legislation Update
By Adrienne Bell and Catherine Parrish Lake
Two other key alcohol bills have passed the House and currently are pending in the Senate. H.B. 218, sponsored by Representative Gage Froerer (R), proposes to create a separate quota for social clubs, or bars. Currently, social clubs are considered in the same category as dining clubs, which are largely fine dining restaurants, equitable clubs (e.g., country clubs) and fraternal clubs, such as an Elk’s Lodge. In addition, the bill would make new club licenses available by shifting quotas and reducing the availability of reception center licenses, which are not in high demand. The change likely will create around 25 new licenses, which are targeted primarily for dining, equitable and fraternal clubs. H.B. 218 also proposes to increase the time that a conditional license can be granted from 6 to 12 months, and addresses the “intent to dine” issue by proposing to allow a restaurant to serve a drink to a patron if the patron indicates an intent to dine. A less business friendly bill (H.B. 240) also addresses the intent to dine issue and has passed the House.
Representative Ryan Wilcox (R) has also proposed new legislation that is receiving a lot of attention. If passed, H.B. 228 will eliminate the so-called “Zion Curtain” that requires some restaurants to mix and pour cocktails and beer behind a wall and out of the view of restaurant patrons.
Both H.B. 218 and H.B. 240 appear to be stuck in the Senate Rules committee. Contact your Senator if you support the changes proposed in these bills. As a reminder, the general session ends March 14, 2013.
Congratulations to Pink Boots Society
The Pink Boots Society was recently granted tax-exempt status by the IRS, and is on its way to awarding its first scholarship. Congratulations! Please join PBS February 15th at Saraveza to celebrate.
Utah DABC Changes Alcohol Enforcement Policy
By Adrienne Bell and Catherine Parrish Lake
Utah’s liquor control agency has started citing restaurants that serve alcoholic drinks to patrons before they order food. The agency has shifted policy to now strictly interpret a key provision of Utah’s Alcoholic Beverage Control Act, which provides:
A full-service restaurant licensee may not sell, offer for sale, or furnish an alcoholic product except in connection with an order for food prepared, sold, and furnished at the licensed premises. U.C.A. Section 32B-6-205(8)(a) (2012).
Previously, the agency only required evidence of an intent to dine before wait staff could serve drinks to patrons. It was not uncommon for customers to sip cocktails as they perused dinner menus or waited for a table. Now, just in time for the Sundance Film Festival and Outdoor Retailer market, the agency is strictly interpreting and enforcing the statute’s provisions to require that restaurant patrons place a food order before being served an alcoholic beverages. Restaurant owners who fail to abide by the new interpretation risk fines ranging from $500 to $3,000 and temporary license suspensions. The policy shift has led to a recent spate of enforcement actions and public outcry.
Several local restaurants have modified their serving practices in response. Some establishments have adopted a conservative approach and are now refusing to serve drinks until food is served. Others are serving drinks once an order for food is placed. Still others have adopted a more creative approach by adding new items, such as a variety of $1 amuse-bouches, which patrons can order together with drink orders. All of the approaches appear to comply with the new interpretation. Whether the agency’s policy shift will lead to legislative changes remains unclear, but at least one state legislator, Representative Gage Froerer, has indicated an interest in amending the statute to address this issue.
Hard Cider Tasting Event Signals a Growing Market
Recently the Washington State University Northwest Washington Research Center hosted what is being touted as “the world’s largest (by variety) hard cider tasting” at the Center’s research facility in Mount Vernon, Washington. The WSU-affiliated research facility and orchard has allowed for the preservation of dozens of apple varieties from growing regions in France, England and the Northeast and has provided a hands-on classroom for farmers interested in apple production.
According to an article in this morning’s Seattle Times, originally published in the Skagit Valley Herald by Mark Stayton, the event attracted local hard cider makers, researchers and enthusiasts and offered tastings of 300 ciders from 16 distinct growing regions of the world. As Stayton points out, the event “help[ed] to signify the growing importance of the WSU research center within the hard cider industry, as well as offer a global perspective to a budding Northwest market.”
Although hard cider remains a relatively small, niche market in the United States, it has seen a surge in popularity in the past decade. It has become one of the fastest growing sectors within the beverage industry. The growth of the hard cider industry is particularly evident here in the Northwestern United States. In just two years since its formation, the Northwest Cider Association, a trade organization founded by cider producers throughout the Pacific Northwest to promote awareness of regional artisanal ciders, boasts 19 member cideries. Experts expect that demand for hard cider will continue to increase in the coming years.
"Master" Liquor Licenses Considered for Utah
by Adrienne Bell and Catherine Parrish Lake
The Utah Legislature’s Business and Labor Interim Committee reviewed a proposal to create a new class of “master” licenses for owners of multiple restaurants to operate under a single liquor license for all locations. The sponsor of the bill, Senator John Valentine (R, District 14), explained that the intent is to entice restaurant chains to locate or expand in the state. His hope is that use of master licenses will free up additional licenses and ease Utah’s chronic shortage of supply. Only 30 of the additional 90 full-service and limited-service liquor licenses that were added in the recent special session of the Utah Legislature remain.
Key features of the proposal, as explained by Senator Valentine, include:
· Creation of a new category of “master” restaurant licenses for full-service and limited-service restaurants.
· Use of a master license would be voluntary, not mandatory, for chains.
· A master licensee must wholly own all sublicensed locations.
o A master license would not be available for franchisors, but could be used by a franchisee who owns multiple locations.
o A master license could cover multiple brands if all are owned by the same person or entity.
o No cap has been proposed on the number of locations that could operate under a single master license.
· A violation at any location under a master license could result in enforcement against that location, staff or other locations under the master license or the master licensee, or any combination of locations, staff and the master licensee. Disciplinary actions would be at the discretion of the Utah Alcoholic Beverage Control Commission (Commission).
· A master license could encompass “grandfathered restaurants” (those that do not have to comply with the “Zion Wall” requirements prohibiting functioning bars in restaurants) and non-grandfathered restaurants.
· An application and license fee totaling $1,830 would be charged for a full-service restaurant master license ($1,080 for limited-service). The $2,200 license fee for full-service restaurants would be charged for each location ($825 for limited-service).
· A master licensee and each location under the master license would have to meet all other eligibility and operational requirements for the applicable license.
· A master license would count as one license for quota purposes regardless of the number of locations it covers.
While the proposal is a promising step for the restaurant industry, the bill’s current language may not accomplish its intended goals. For instance, disciplinary actions would be left to the Commission’s discretion. The bill allows the Commission to promulgate rules for master licenses. Senator Valentine stated his intent is to have the Commission apply a disciplinary framework to master licenses, such that minor violations would result in enforcement actions against the offending location or individual staffer while major or continuous violations could be enforced against the master licensee. The bill’s language, however, does not require such measures. As discussed at the hearing, a master licensee’s only recourse for disciplinary action would be a lengthy and expensive appeal process, during which the licensee (and each location) would not have the applicable liquor license. Without clear rules on violations and enforcement actions, chains may decide not to take advantage of the master license option.
Also, the current proposal does not address “club” licenses, which include bars and dining clubs. As a result, chains with restaurant locations under both dining club and full-service restaurant licenses would not be eligible for a master license. For the last few years, the state has had an acute shortage of club licenses. Dawn House of the Salt Lake Tribune reports that the bill is unlikely to address this issue.
We will continue to track this proposal as well as others during next legislative session, so stay tuned.
Stoel Rives Wine, Beer and Distilled Spirits Group Recognized by Chambers USA
Stoel Rives LLP is pleased to announce that the firm's Wine, Beer and Distilled Spirits group has been recognized by Chambers USA as a nationwide leader in the category of "Food & Beverages: Alcohol." Stoel Rives is one of only 10 firms nationwide to be ranked in this category.
Stoel Rives partner and founding chair of the Wine Law group, Chris Hermann, was also individually ranked nationwide in the Food & Beverages: Alcohol category.
Stoel Rives has represented U.S. and international wineries for over 30 years."Our clients trust us to serve as counsel to them on the day-to-day issues they face," said Hermann. "It is an honor to receive this praise from our clients and industry professionals."
Through industry presentations and publications and this blog, our attorneys are dedicated to helping you stay informed about legal developments that most affect your business.
New Licenses For Utah
The Utah Legislature today in a special session passed a bill (S.B. 4001) to increase the number of restaurant licenses available in the state. The bill will now go to Governor Herbert , who is expected to sign.
50 additional full-service restaurant licenses and 40 limited-service restaurant licenses will be available as of July 1, 2012. Currently, there is one full-service restaurant license available and no limited-service licenses. 25 applicants are reported to be waiting for both types of licenses.
The increase in restaurant licenses is commonly seen as a stop-gap measure. At current rates, Utah is likely to run out of restaurant licenses again within a year or two.
A full-service restaurant license allows for the sale of all wine, beer and spirits. Limited-service restaurant licenses are allowed to sell only wine and beer. Both types of restaurants must maintain a ratio of at least 70% food to 30% alcohol sales and food must be ordered to serve a drink. Restaurants also must abide by the so-called “Zion Wall” that requires that all alcohol, except for wine, be poured out of the public view.
The bill also pushed back the effective date of a law that would have allowed license holders to sell existing licenses as of July 1, 2012. The new effective date is July 1, 2013. The bill’s sponsor, Senator John Valentine (R – Orem), indicated that the additional year was to provide the state with time to consider the effects of commoditization and possible unintended consequences.
The bill did not address “Club” licenses, which cover bars, restaurants with visible bars and fraternal clubs (such as the Elks Lodges). Utah currently is out of all Club licenses (in fact is at negative 1, having issued more than the current quota allows). 17 applicants have been waiting for more than a year for various Club licenses. Representative Gage Froerer (the House sponsor of S.B. 4001) indicated that more work is needed to address the lack of availability of licenses for restaurants (called dining clubs) that are currently operating under the Club scheme.
Additionally, the bill added measures to increase alcohol enforcement, particularly with regard to restaurants. Certain application and renewal fees were increased by 10% to offset these enforcement measures.
Implementation of I-1183 Remains On Schedule; Washington Supreme Court Argument Set for May 17, 2012
From our colleague Hunter Ferguson:
The implementation of I-1183 remains on schedule. Last Friday, April 6, a Washington Supreme Court Commissioner issued an order denying an emergency motion for injunctive relief to halt the implementation of I-1183. The motion was filed by the plaintiffs in Washington Association for Substance Abuse and Violence Prevention v. State. The WASAVP plaintiffs were unsuccessful in challenging I-1183 before the Cowlitz County Superior Court and have obtained direct review by the Washington Supreme Court. Oral argument before the Supreme Court is scheduled for May 17, 2012 – which is two weeks before I-1183 mandates the closure of state-run liquor stores on June 1. In denying the plaintiffs’ motion, the Commissioner observed that the Supreme Court very well could issue an opinion before the June 1 implementation deadline, thus conclusively resolving the controversy over I-1183.
Starbucks to Start Selling Beer and Wine in California
Expanding on its pilot programs in Seattle and Portland, Starbucks will begin selling wine and beer at a few select locations in Orange County, CA by the end of this year. The program will reportedly sell California vintages and micro-brews. You can read more about the story here and can I get that in a Venti?
Tasting Rooms Not Restaurants Says California Appeals Court
In a recent 3-0 decision, a California Appeals Court sided with Freemark Abbey Winery in its attempt to move its wine store and tasting room into a building in St. Helena which already contained a restaurant. The decision reversed the district courts granting of a preliminary injunction which would have stopped Freemark’s move entirely until a trial.
The building is owned by Freemark and the move was challenged by Silverado Brewing Co., the current operator of the existing restaurant. The challenge stems from Silverado’s lease, which gives it exclusive rights to run a restaurant in the building. Silverado claimed that moving Freemark’s tasting room into the same building would violate that exclusivity.
The court based its decision on the word “purvey” which, it stated, in this context simply meant selling. Any other reading, said the court, would lead to “absurd results.” The decision remanded the case back to district court with an order to vacate the broad preliminary injunction the district court had previously granted and an order to institute a new narrow injunction which would “prohibit[s] Freemark Abbey from selling food or beverages for consumption on the premises in any portion of the building” pending trial.
A copy of the court decision can be seen here.
Stoel Rives Holds California Wine Seminar
On March 8 and 9, Stoel Rives cosponsored, with Kennedy/Jenks Consultants, the 6th Annual Best Practices for Owning and Operating a Winery, held in Napa, CA. The well attended event covered such topics as valuation, water, energy, and branding. Stoel attorney’s Chris Hermann, John McKinsey, and Jake Storms were all panel speakers with John McKinsey acting as emcee for the second day of the conference.
I-1183 Challenge Update
By Hunter O. Ferguson, Stoel Rives
With a little more than two months remaining before I-1183 is scheduled to take full effect on June 1, 2012, the implementation of the initiative will turn on whether the Cowlitz County Superior Court concludes that section 302 of the initiative cannot be severed from the other provisions approved by voters last fall. On March 2, the Court entered partial summary judgment in Washington Association for Substance Abuse and Violence Provisions v. State, upholding all provisions of I-1183 except section 302, which requires that $10 million be spent annually on public safety programs from revenues raised through new alcohol license created by the initiative. The Court held that section 302 violates the single-subject rule of article II, section 19 of the Washington Constitution because section 302 is a general spending measure unrelated to the regulation of the distribution and sale of liquor and therefore has no rational unity with the subject expressed in the title of the bill. But after concluding that severance of section 302 would not frustrate the underlying purpose of I-1183 concerning privatization and deregulation, the Court declined to strike down I-1183 in its entirety. Instead, it will hold further hearings on the issue of severability commencing on March 19.
The issues to be resolved at the scheduled hearings are (a) which party bears the burden of showing that it cannot be reasonably believed that Washington voters would have passed I-1183 without section 302 and (b) whether, in fact, it cannot be reasonably believed that Washington voters would have passed I-1183 without section 302. On the burden of proof issue, the Court is expected to rule that the plaintiffs bear the burden, as there is a presumption under Washington law in favor of severability. See State v. Harris, 12 Wn. App. 906, 918, 99 P.3d 902 (2004). On the substantive question of voter intent, the plaintiffs likely will have a difficult time of proving that voters would not have approved I-1183 without section 302 because courts view the inclusion of a severability clause in a statute as and indication that voters would have approved the remainder of the statute without the invalid portion. I-1183 contained such a severability clause in section 304.
As far as the plaintiffs’ other arguments attacking the constitutionality of I-1183, the Court rejected them. Although the Court agreed with the plaintiffs that the licensing fee scheme created by I-1183 is more appropriately characterized as a tax, the word “fee” in the initiative’s title was not deceptive because the initiative explicitly provides that licensees will be required to pay to the state a percentage of their sales revenues. Regarding the plaintiffs’ other single-subject arguments, the Court ruled different provisions effecting a different deregulation of the distribution of spirits and wine, provisions concerning alcohol advertising, and a repeal of purposive policy statements under the prior regulatory scheme all bore a rational unity to the underlying subject of a comprehensive revision to the regulation of liquor distribution and sales. Therefore, such provisions do not violate the single-subject rule.
Whatever the outcome of the upcoming hearings on severability, there likely will be an appeal concerning the constitutionality of I-1183, and we will continue to analyze the issues as this litigation wends it way through the courts.
Site Visit to Heater Allen
On February 16th, Stoel Rives LLP held its 5th Annual Law of Wine Seminar at The Allison in Newberg. The seminar focused on the trends and developments in the wine industry as well as touched on issues facing the distilled spirits and brewery industries. After presenting at the seminar, three Stoel attorneys Jeremy Sacks, Reilley Keating,and Elaine Albrich ventured to McMinnville to visit Heater Allen, a small seven-barrel artisan brewery specializing in all-malt lager and other German and Czech style beers. Lisa Allen, Assistant Brewer and daughter of Owner and Brewer Rick Allen, greeted us and hosted a tour of the facility, including the area for the proposed expansion. Lisa offered us tastes of three of Heater Allen’s brews: the Pils, the Coastal and the Dunkel. In addition to tasting great beers, we learned about Heater Allen’s history, its philosophy on brewing, and its approach of marketing and distribution.
Thanks Heater Allen for a great visit!
Washington Wine, Beer & Distilleries Law Seminar - March 15, 2012
Please join us for our inaugural Washington Winery, Brewery & Distillery law seminar at the Columbia Winery in Woodinville, Washington on Thursday, March 15.
Panels to include these hot topics, plus much more:
- Privatization/I-1183
- Trademarks
- Employment Laws
- Tasting Room Operations
- Taxes
For more information and registration visit: http://www.stoel.com/showevent.aspx?Show=9199
Idaho Wine, Beer & Distilleries Law Seminar - Thursday, March 1, 2012
Please join us for our inaugural Idaho Wine, Beer & Distillers law seminar at the Boise Centre in Boise, ID on Thursday, March 1, 2012. .jpg)
Panels to include these hot topics, plus much more:
- Start-ups (licensing, permitting and business formation)
- Trademarks (protecting your investment)
- Distribution and other key contracts
- Land use issues
- Employee matters
For registration visit: http://www.stoel.com/showevent.aspx?Show=9156
5th Annual Oregon Wine Law Seminar - February 16, 2012
Please join us for our 5th Annual Oregon Wine Law Seminar at the Allison Inn and Spa in Newberg, Oregon on Thursday, February 16.
Topics and panels include start-ups, trademark registration, employment, privatization of OLCC liquor sales, land use and a panel discussion on alternating premises (wine/beer/spirits). This seminar is complimentary to all industry members. Topics will apply to wineries, breweries and distilleries.
For agenda and registration visit: http://www.stoel.com/showevent.aspx?Show=9155
A Check-In with the Idaho Wine Industry
An update from our colleagues Allison Blackman and Nicole Hancock:
The State of Idaho is most infamously know for the potato but the recently reenergized Idaho Wine Commission, vintners, and wineries across the state hope to soon add Idaho Wines to the Gem State's reputation.
Idaho wines regularly net honors in regional and national competitions, and the media are increasingly taking notice. "They want something new to write about, and that's us," says Executive Director of the Idaho Wine Commission, Moya Shatz. The October issue of Sunset magazine sports a feature story headlined: "Discover new wine country: In Idaho's low-key Snake River Valley, the wine is getting seriously good."
Idaho is steadily earning a reputation for growing and producing vinifera wine grape varieties such as syrah and viognier, as well as classic varieties including merlot, cabernet sauvignon, chardonnay and riesling.
Continue Reading...Cowlitz County Superior Court Denies Motion For Preliminary Injunction Against I-1183
Defenders of I-1183 received a holiday gift last week from the Cowlitz County Superior Court. On Thursday, December 22, 2011, the Court issued two important rulings in the declaratory judgment action challenging the constitutionality of I-1183.
First, the Court granted the motion to intervene brought a group of supports of I-1183 led by Costco and the Washington Restaurant Association. In so ruling, the Court observed that those entities’ economic interests were implicated by challenge to I-1183 and that their interests were distinct from those of the State. Those entities now will be able to participate fully in the defense of I-1183.
Second, the Court denied the motion for preliminary injunction to block implementation of I-1183. The Court explained that I-1183 is the law of Washington and that Plaintiffs had not carried their heavy burden for altering that status quo.
Following that ruling and recognizing that the challenge to I-1183 turns largely, if not exclusively, on pure legal arguments, the Court set the following expedited schedule for summary judgment briefing and a trial date if necessary:
- January 20, 2012: Opening Summary Judgment Briefs Due
- February 10, 2012: Responsive Briefs Due
- February 17, 2012: Reply Briefs Due
- March 5, 2012: Summary Judgment Hearing
- April 16, 2012: Trial
In setting this schedule, the Court stated that it welcomed extensive briefing on the issues presented. Thus, there might be an opportunity for the filing of amicus briefs.
We will continue to monitor developments in the case. If you have any questions, please do not hesitate to contact us.
TTB Publishes Notice of Rulemaking for Inwood Valley AVA
On December 5, 2011, the TTB published a Notice of Proposed Rulemaking (Notice No. 125) regarding the establishment of the Inwood Valley Viticultural Area in Shasta, California. If established, the new AVA would consist of a 28,000 acre area, the vast majority of which is currently not dedicated to, or known for, vineyards. The TTB invites comments on the proposed rulemaking, with any comments due on or before February 3, 2012. A full version of the Notice and the documents relating to the underlying Petition can be found here.
Utah to Consider Privatization Models
The recent move by Washington voters to end state control of liquor sales, combined with ongoing corruption scandals within the Utah Department of Alcoholic Beverage Control, is causing Utah lawmakers to renew privatization discussions. Support appears to be growing to limit the state’s involvement in liquor sales at least to some degree.
Utah is among the minority of states that control wholesale and retail liquor sales. Several Utah state legislators have expressed an interest in privatizing the retail business. Some have also expressed interest in privatizing wholesale sales. Governor Herbert has expressed interest in retail change but appears reluctant to remove control of the wholesale system. Wholesale privatization appears less likely than retail privatization, because of a perception that state control over distribution and pricing results in fewer alcohol-related problems.
Utah currently allows some private retail alcohol sales through “package agencies.” Package agencies are located in resorts and rural areas and offer a modest selection of products. Similar to liquor licenses, package agency contracts are granted based on population with one package agency allowed per 18,000 people. Expanding the package agency system, for instance to allow grocery stores to operate liquor outlets, could act as a bridge to full privatization.
Any privatization reforms will have to clear several hurdles, including compensating for the substantial profit the state realizes from liquor sales.
TTB Rules to Expand Sonoma AVAs
On Wednesday November 16, the TTB published a ruling (T.D. TTB-97, available here) amending the federal definition of the Russian River Valley viticultural area and the Northern Sonoma viticultural area, by expanding each. The action first began in August of 2008 when Gallo Family Vineyards submitted a petition for the amendment. After receiving numerous comments both for and against, the TTB ruled to expand the Russian River Valley viticultural area south and southeast by 14,044 acres to 169,029 acres, an increase of 9%. This expansion will include land just west of Rohnert Park and Cotati.
The decision will also expand the Northern Sonoma viticultural area to include the entirety of the Russian River Valley viticultural area. The expansion will add 44,244 acres to the Northern Sonoma area, bringing its total to 394,088 acres, also an increase of 9%.
The TTB specifically noted in the ruling that the expansion will not affect currently approved wine labels but will allow winemakers in the expanded area to utilize the two viticultural designations not previously available to them.
The ruling goes into effect on December 16, 2011.
Liquor Sales to be Privatized in Washington State
Initiative Measure No. 1183 is passing by a 20% margin according to Washington Secretary of State’s 2011 General Election Results website. The same source indicates that, as of this morning, a majority of voters in only four of Washington State’s counties in the state were not definitively in favor of the measure.
A Press Release by the Washington State Liquor Control Board indicates that the agency “will continue to maximize revenue in responsible ways through the holiday season” and, in January, will focus on divesting its self of the state’s current wholesale distribution and retail operations. “By June 1, 2012, all liquor business operations - including purchasing, distribution and retail -- will be transitioned to the private sector.”
There are many unknowns that we expect to be addressed by agency rulemaking in the coming months of transition and we will be working closely with our current and future clients to help them understand how the changes affect their current business interests and strategic plans.
IRS Publishes New Audit Technique Guide for Wineries and Vineyards
The IRS recently issued a new Audit Technique Guide (“ATG”, available here) applicable to winery and vineyard operations. As with previous IRS guidance, the new ATG is meant to be used by IRS examiners; however the IRS anticipates the industry will rely upon the publication as a guide. It should be noted, the ATG should not be cited as the IRS's technical position.
Many of the issues in the new publication have been previously covered in prior IRS guidance. In this ATG, however, the IRS appears to streamline many of its positions. For example, the UNICAP rules, to which wineries are subject, have evolved since the 1995 guidance. While previously cited as only temporary, these rules have since been finalized, and additional UNICAP rules have been added.
While the streamlining in the new guidance is mainly procedural, the ATG does reflect some significant developments. One such change is the IRS's acknowledgement that vineyards may qualify for Section 179 deductions. Currently, Section 179 allows a $500,000 deduction to taxpayers who place over $2 million of property in service by the end of 2011. For 2012, Section 179 reduces those numbers to a $125,000 deduction for placing over $500,000 of property in service during that year. The deduction will be further reduced to $25,000 for tax years beyond 2012. The ATG states that, based on changes to the definition of property subject to the Section 179 deduction, "[c]ertain practitioners are taking the position that this new definition includes vineyards and are taking [the Section] 179 deduction."
In addition, the ATG addresses and essentially blesses an income deferral method rejected in a 1996 case. The ATG describes the case as involving an accounting structure in which a farmer, using cash method accounting and operating a vineyard as a division of a winery, would sell grapes to the winery without receiving payment until the wine was sold, up to two or three years later. As a result of using cash method accounting, the vineyard would defer income until such time as the wine was sold. The ATG states that in 1997, the IRS published treasury regulations allowing this accounting practice.
To learn more about the issues discussed above as well as other developments addressed in the ATG, please contact:
Carl Lewis at cslewis@stoel.com
Nikki Dobay at nedobay@stoel.com
Jake Storms at jwstorms@stoel.com
This post was created in conjunction with Nikki Dobay.
California State Water Board Moves on Frost Protection Program
The State Water Resources Control Board (“Board”) held a workshop last week on a proposed regulation designed to assess and mitigate water use from the Russian River by growers in Mendocino and Sonoma Counties during frost season. Though no formal action took place, the Board received numerous comments on the proposed regulation.
The regulation would add Section 862 to the California Code of Regulations establishing that any water diversion from the subject area from March 15 to May 15 not in accordance with a Board-approved Water Demand Management Program (“WDMP”) would be deemed unreasonable. This includes the pumping of hydraulically connected groundwater, but excludes diversions upstream of the Warm Springs and Coyote Dams.
In addition, the new regulation would require the WDMP to include:
· An inventory of the frost diversion systems within the area subject to the WDMP
· A stream stage monitoring program
· Annual assessment of potential risks to salmonids from frost diversions
· Identification and implementation of any corrective actions deemed necessary to protect salmonids
· Annual reporting of the WDMP
The workshop was heavily attended by stakeholders from both government and industry and included a presentation of the projected cost of the proposed regulation. The draft economic report, available here, states that the average cost for those diverters in Mendocino County not requiring corrective actions would be $105.86 per acre in initial capital outlay and $28.50 per acre in annual costs; for Sonoma County, those numbers would be $59.98 and $18.74, respectively. For a 40-acre vineyard in Mendocino, this puts the total cost at $4,234 for initial capital outlay and $1,140 in annual costs; for Sonoma County, these numbers would be $2,399 and $749, respectively.
A common theme from the Board and the audience was that several important terms in the proposed regulation had yet to be satisfactorily defined. Chairman Hoppin, himself a farmer, repeatedly stated his hope that both sides would strive for a balance between protecting species and the water needs of farmers.
Several commentators expressed a need for the Board to address the permitting of offstream storage (i.e., storage ponds) as a tool to help address Russian River overdraft. Chairman Hoppin assured the audience that steps needed to be taken in this arena and that it was on the Board’s radar.
Formal rulemaking and the program’s environmental report are expected in mid-May, with final regulations in place by March 2012.
Changes to Utah's Liquor Laws
The 2011 legislative session wrapped up last night with several changes being made to Utah’s liquor laws, including:
- Converting 40 tavern only licenses into 15 full restaurant licenses and 25 limited restaurant licenses (beer and wine only)
- Allowing a hotel guest to order one drink at a time through room service
- Permitting alcohol to be sold beginning at 11:30 a.m. (a change from noon for liquor and wine and 10:00 a.m. for beer)
- Increasing the fees for liquor licenses (for instance the initial and renewal fees for a limited restaurant license increased to $750 and $550 respectively)
- Banning the sale of mini-kegs
- Allowing existing licensees to sell liquor licenses, although not until after July 31, 2012, when that portion of the law goes into effect
- Creating a reception license for reception centers larger than 5,000 square feet that derive no more than 30% of gross sales from the sale of alcohol
- Eliminating any doubt that an establishment cannot allow drink specials
- Requiring dining club licenses to derive at least 60% of gross sales from food
- Increasing enforcement
The bill (S.B. 314) now awaits Governor Herbert’s signature, which is expected. While the new law will free up an additional 40 restaurant licenses, many observers doubt that this will alleviate demand for long. The state currently has issued 21 more licenses than allowed under current law because of an overestimation of census figures. This law preserves the licenses already granted, but it will take some time before population catches up with the number of licenses already granted let alone freeing up additional licenses.
TOM CRONE NAMED ASSISTANT ADMINISTRATOR FOR FIELD OPERATIONS
This was announced last week. Bernie Kipp has known Tom Crone for over 30 years. He hired Bernie for Regulations and later as District Director. He's a good guy with a practical approach. He would be the final decision maker in any action against field permitee.
TOM CRONE NAMED ASSISTANT ADMINISTRATOR FOR FIELD OPERATIONS
TTB Administrator John Manfreda and Deputy Administrator Mary Ryan have announced the appointment of Thomas R. Crone as Assistant Administrator for Field Operations, effective February 27, 2011. As TTB's Assistant Administrator for Field Operations, Mr. Crone is responsible for oversight, direction, and coordination of all Field Operations functions associated with TTB's tax collection and consumer protection programs. Mr. Crone brings a wealth of experience to the job along with his knowledgeable, practical, and collaborative approach that is so vital to carrying out our mission goals.
Conjunctive Labeling Comes to Sonoma County
With the turn of the calendar and after nearly a year of political wrangling, conjunctive labeling will be the norm for Sonoma County wineries beginning in 2014. Passed by unanimous vote in both the state assembly and senate in August and signed by Governor Schwartzenegger at the end of September, AB 1798 will require wineries using the name of any of the 13 recognized American Viticulture Areas (AVA) within Sonoma County on their labels to include “Sonoma County” as well. The bill is not retroactive as it applies only to wines bottled after January 1, 2014. Failure to comply is considered a misdemeanor and subjects the violator to possible revocation of their ABC license. To achieve compliance, it will be necessary to file for and receive a new Certificate of Label Approval (COLA) from the TTB for those labels already approved.
Response to the new requirements has been mixed. Pushed heavily by the Sonoma County Winegrape Commission and the Sonoma County Vintners, Nick Frey, the Commission’s president, stated, “In this increasingly competitive wine market, building awareness for Sonoma County and the wine regions within the county is critical to Sonoma County grape growers and the wineries they supply. AB 1798 will ensure that consumers recognize every bottle of wine produced from Sonoma County grapes.” However, several large, well-known wine producers in the region see the legislation as diluting their already well-established brands, in addition to the added cost and confusion of including “Sonoma County” on an often already crowded label.
Some of the better known of Sonoma’s AVAs are the Russian River Valley, Sonoma Coast and Dry Creek Valley. California requires conjunctive labeling for three other viticulture areas: Napa Valley, Lodi, and Paso Robles.
OPB Think Outloud
What a great way to spend a Wednesday morning. I joined Portland's thought leaders on all-thing-alcohol this morning at St. Jack restaurant, where we broadcasted live on OPB. A lively 
discussion of Oregon's alcohol industry was lead by On Air Host Emily Harris. Reasons behind Oregon's alcohol industry boom, the State's history with alcohol, and some tasty holiday cocktails were all topics for discussion.
Thanks to Steve Pharo, Executive Director of the Oregon Liquor Control Commission; Brian Butenschoen, Executive Director of the Oregon Brewers Guild; Kyle Jansson, Coordinator of the Oregon Heritage Commission; Karen Foley, Publisher of Imbibe Magazine; and of course Tommy Klus, Bartender at St. Jack restaurant and Teardrop Longe in Portland. That was fun.
If you missed it, please listen here.
